The Theory of Economic Development by Schumpeter Joseph A

Author:Schumpeter, Joseph A. [Schumpeter, Joseph A.]
Language: eng
Format: epub
Tags: Finance, Economics, Business, Politics, Social Science, Sociology, Society, Entrepreneurship, History, Philosophy, Non-Fiction
ISBN: 9780878556984
Amazon: 0878556982
Goodreads: 134799
Publisher: Routledge
Published: 1934-12-12T08:00:00+00:00

CAPITAL

It is now time to give expression to a thought which has long been awaiting formulation and which is familiar to every businessman. That form of economic organisation in which the goods necessary for new production are withdrawn from their settled place in the circular flow by the intervention of purchasing power created ad hoc is the capitalist economy, while those forms of economy in which this happens through any kind of power of command or through agreement of all concerned represent non-capitalistic production. Capital is nothing but the lever by which the entrepreneur subjects to his control the concrete goods which he needs, nothing but a means of diverting the factors of production to new uses, or of dictating a new direction to production. This is the only function of capital, and by it the place of capital in the economic organism is completely characterised.

Now what is this lever, this means of control? It certainly does not consist of any definite category of goods, of any definable part of the existing supply of goods. It is generally recognised that we meet with capital in production and that it is useful in some way or other in the productive process. Hence we must also see it somewhere in operation in our case of carrying out new combinations. Now all the goods which the entrepreneur needs are on the same level from his standpoint. He wants the services of natural agents, of labor, of machinery, of raw material, all of them equally and in just the same sense, and nothing distinguishes one of these wants from the others. Of course this is not to say that there is no relevant difference at all between these categories of goods. On the contrary there are certainly differences, even though their significance was and still is overestimated by many theorists. But it is clear that the entrepreneur's behavior is the same towards all these categories: he buys all of them for money, for which he calculates or pays interest, without distinction, whether they are tools or land or labor. They all play the same part, are equally necessary for him. In particular it is quite immaterial whether he begins his production as it were ab ovo, that is merely buys land and labor, or whether he also acquires already existing intermediate products instead of producing them himself. Finally, if he should acquire consumption goods this would make no fundamental difference either. Nevertheless, it would look as if consumption goods had the first claim to be emphasised, especially if one accepted the theory that the entrepreneur “advances” consumption goods to the possessors of productive means, in the narrower sense of the word. In this case these goods would be characteristically different from other goods; they would play a special rôle, and indeed precisely the one which we assign to capital. From this it would follow that the entrepreneur would exchange productive services for consumption goods. Then we should have to say that capital consists of consumption goods.

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